Helping clients navigate the EU Taxonomy

For many large corporates in Europe, sustainability has already shifted from a societal expectation to a strategic priority – and in some cases, a legal requirement.  

Recent frameworks such as the Corporate Sustainability Reporting Directive (CSRD), the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy are supporting this shift, demanding greater transparency in sustainability reporting. 

Yet, navigating the fast-evolving regulatory landscape can be complex and challenging for organisations. As a result, we were appointed to help multiple clients to understand and assess their performance against the EU Taxonomy criteria. 

What is EU Taxonomy and why is it important?

Created by the European Commission, the EU Taxonomy is a classification system and transparency tool for organisations to identify which of their economic activities – or those they invest in – can be deemed ‘environmentally sustainable’.  

Not only does the Taxonomy help to prevent greenwashing, promote climate-positive practices and mitigate market fragmentation, but it also facilitates sustainable investments to support the objectives of the European Green Deal.  

Currently, all listed and large financial market participants (banks, fund managers, insurance companies) and non-financial undertakings in the EU – especially those subject to the CSRD (formerly the Non-Financial Reporting Directive [NFRD]) – are required to disclose how and to what extent their economic activity includes or finances sustainable projects according to the EU taxonomy criteria.   

This involves providing detailed evidence of their compliance with six environmental objectives: climate change mitigation, climate change adaptation, protection of water resources, circular economy, pollution prevention and biodiversity protection. 

Clarifying the EU Taxonomy reporting process

Although many companies are used to managing their facility’s environmental performance on a regular basis, the EU Taxonomy exercise demands a deeper examination. Reporting obligations are also now based on technical analysis, which can present additional challenges.  

Applying our in-depth knowledge of the Taxonomy we guided our clients through the process, clarifying their disclosure obligations and helping them carry out a technical alignment assessment of their performance against the broad set of criteria. 

Additionally, we provided recommendations to each client on how to use the analysis to improve their ESG strategies, establishing a strategic investment plan to enhance future reporting, as well as guidelines to complete the mandatory EU Taxonomy key performance indicators (KPIs) report. 

Streamlining data management through custom-built digital tools 

The technical alignment assessment is particularly challenging because of the bottom-up approach, which involves assessing compliance with the EU Taxonomy starting at the most fundamental, operational level of a company – i.e., its individual facilities or production units.  

While this method ensures a thorough and accurate assessment of how each aspect of the company’s operations aligns with the Taxonomy’s sustainability criteria, it is also more data intensive.  

Another challenge was separating the data corresponding to eligible activities (those which meet the defined criteria for being environmentally sustainable), which are not always independent within the production processes and facilities nor the financial data. 

To overcome these challenges, collaboration was crucial throughout. We not only facilitated a series of workshops with client teams to monitor project progress and solve issues, but we also worked closely with our in-house digital team to create tools for data management and visualisation of the assessments. This enabled clients to explain the results within their corporate divisions. 

Going beyond simple compliance  

With the growing importance of EU Taxonomy and other frameworks, companies must adopt a proactive approach if they are to keep pace with the fast-evolving regulations.  

Alignment with the Taxonomy goes beyond mere compliance; it is expected to significantly impact access to future finance, enhance market reputation and prepare companies for upcoming regulatory changes in sustainability. 

Thanks to our knowledge and expertise, we were able to inform our clients about the specific requirements and provide up-to-date information of the Taxonomy regulations. Moreover, our assessment support allowed each client to complete the technical criteria for all the required objectives – allowing them to navigate the reporting process with confidence.